Wednesday, December 17, 2008

What Would D. Crockett Say About Bailout Nation?

From Davy Crockett's "It's Not Yours To Give" story:It is not the amount that I complain of; it is the principle. The power of collecting and disbursing money at pleasure is the most dangerous power that can be intrusted to man, particularly under our system of collecting revenue by tariff (Note: There were no income taxes in the 1800s when this was written, most government revenue came from tariffs), which reaches every man in the country, no matter how poor he may be, and the poorer he is the more he pays in proportion to his means.If you have the right to give to one, you have the right to give to all; and, as the Constitution neither defines charity nor stipulates the amount, you are at liberty to give to any thing and everything which you may believe, or profess to believe, is a charity, and to any amount you may think proper. You will very easily perceive what a wide door this would open for fraud and corruption and favoritism, on the one hand, and for robbing the people on the other. No, Congress has no right to give charity. Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose.(Originally posted in August 2008.)Update: These were the words of Horatio Bunce, a constituent of Davy Crockett.

21 Comments:

Sounds good but that isn't the way it works in our now bailout anything to keep me form facing up to my mistakes society. The US is headed to banana republic status and socialism. To big to fail is the mantra of the day with an insolvent banking system at the head of the line. Socialize the losses and privatize the profits.

Is $50 billion a bailout, or a return on investment and a hope for the future? One of my salaried friends at GM is the president of a local school board. Although he is usually against unions and what they stand for, he agrees new schools should be built using prevailing wages. Why you might ask. He explains that wages from GM workers, salaried and union alike, built the schools in the first place, and many GM workers, along with pensioners, continue to support the schools, so it only right to support those who support you.

Obviously, this in not a way to run a profitable business; it sounds counterintuitive to common business sense. However, government is not supposed to run like it is a business. That’s private industries’ job. Government should do what private industry cannot or will not do. In that case, $50 million for what autoworkers have given in lives for wars and money for infrastructure sounds cheap. How many roads, bridges, parks, airports, government buildings . . . have Toyota, Nissan, and Honda workers and their companies built in the last 100 years? We need to welcome the transplants future contributions to society while also recognizing the sacrifices made by the traditional Big Three in the past.

Don’t forget tomorrow is Labor Day. Be sure to celebrate the freedom and comforts that American workers always have, and always will, provide for their country.

So 100 years from now, when "Toyota, Nissan, and Honda workers and their companies" have amassed a history of contributing to "roads, bridges, parks, airports, government buildings," we can jettison the deadweight of unions with impunity? Cool! I didn't realize that bad economic principles could be justified by such a thing.

Unions are counter-productive and anti-capitalist. Anybody who has ever been around union workers can plainly see that the collectivists have no incentive to do much of anything. Using union labor is a sop to union thuggery and should be avoided.

Government does not use sound economic principles; that's private industries’ prerogative. If a service is economically feasible, private industry should be performing it. And, yes, that includes education. This money is not a grant; the U.S. is just co-signing a loan. If the Big Three were to go out of business, the financial ramifications are much more than $50 billion.

skh.pcola,

That’s kind of lightweight rhetoric against unions isn’t it? There’s not one fact in all of your writing. Character assassination is not an effective form of argument.

The big 3 are certainly have great difficulty raising money from issuance of shares or obtaining capital financing in a very tight credit market. While I agree that a loan is repaid so it is not technically a bailout, government backed loans become a very slippery slope kind of precident.

In this instance, the government has created the problem by mandating fuel efficiency changes that are incredibly difficult for automakers to achieve.

When one looks at the mess created by Freddie & Fannie, banking appears to be an area of low competence for government. Originally, these 2 organizations were supposed to be a temporary measure.

How does one keep temporary stopgaps from becoming standard government practice?

I believe government should only be in the business of doing things that private industry can not, or will not, do. We have a model for this type of loan guarantee: Chrysler 1979. Was that worth the gamble? I think by most accounts that it was. Every penny was repaid and new revenue resulted from the success of the business.

Is 2008, a 1979 Chrysler scenario? It sure seems to be. Credits markets are tight through no fault of the Big Three. And outside funding is scarce, so viable alternatives to government-backed funding do not exist. So, I guess the question is not should we guarantee these loans, but can we afford not to? If the Big Three do strike out, haven’t they at least earned the right to go down swinging?

It would seem that by using this logic we could justify the federal government cosigning loans for all U.S. citizens - particularly us small business owners that provide something like 80% of the jobs in this country.

Maybe the Big Three should tell the U.S. government to keep the $50 billion in return for eliminating all the costly rules and regulations they impose on the automakers. We are not dealing with a free market here, so why should the companies be held to that standard?

At the federal level, the government has to reimburse the states and local governments for mandates they impose. How much would the federal government have to pay the automakers to build cars to all the standards that meet federal law? I’ll bet it’s much more than $50 billion.

Because of the credit crisis, which is largely government created, the auto companies cannot find credit on the open market. These loans are vital to the continued business of the automakers, they can stand on their own merit, and they not would be turned down in normal times. Shouldn’t the federal government help straighten out the mess they created with the twin problems of tight credit and the new fuel economy standards? If government can’t do what others won’t, what good is it?

Have to agree that the government has created a total balls up mess in housing, and credit markets and introduced CAFE regulations that are practically impossible to meet. The government should be responsible for the consequences of its ill-conceived policies and that probably means stepping up to the plate to help the Big 3.

Have to agree. This is not a free market by any stretch of the imagination.

I have less difficulty with this decision than Fannie & Freddie. If any entities should be phased out once this crisis is resolved, it is these 2.

skh.pcola said:we can jettison the deadweight of unions with impunity? Cool! I didn't realize that bad economic principles could be justified by such a thing.

That was practiced with some success beginning in the 1980's if you were paying attention. While there may have been previous efforts, that was when those efforts stuck.

Using union labor is a sop to union thuggery and should be avoided.

That would also implicate businesses who use "labor consulting/union avoidance" firms or have an internal version of them. Swapping union reps for lawyers and mercenaries(think along the lines of Vance International and the historical Pinkerton) only changes the direction of thuggery. It does not change thuggery into something nice.

Unfortunately what Detroit wants, Detroit will get. It's not as if the other automotive manufacturers get subsidies from their home country(looking at Japan, and to some lesser extent Korea, along with others). There are simply too many people that buy their cars at their price levels(even if they do the improbable). Follow that by informing them that muscle is not what Japan/Korea/China will (want to) deliver and what Germany only delivers at great expense.

Walt G:I (hesitantly) agree with that, as I've seen a near-collapse of NCR. While they weren't (strictly) union, workers there were part of an informal "family". Like General Motors, they made substantial investments in the community. When they re-emerged from AT&T, they did everything to avoid that.

With the Big Three, it is not so much the unions, but the Detroit way of building a car. That is what is really at stake if the Big Three go under. Muscle is encouraged, not limited in their designs(with few exceptions). They go large(compared to some at-price competitors) and still manage to move cars off the lot. That is something that cannot be done easily if you have tons of environmentalist legislation in the way.

If you still want to attack Detroit (and the unions), make sure you know what you're going to get. The way that the regulations are now, it won't be the result of anything close to a free market.

The primary problem that has caused the banana republics to fail is the concentration of all the wealth in the hands of a few while the masses starve. Ergo you get constant juntas, contras, and revolutions. And, many are "free market" systems.

A major reason that America has been so successful is that the wealth has been spread around creating a large middle class that pays taxes and buys all the goods and services - and business reaped the profits. Few on this blog will admit that Walt G's UAW helped make all of that happen.

Mika,Your argument about the creation of the middle class being a product of the UAW would mean that the middle class consists primarily of hourly laborers. I don't have any statistics on this, but my intuition tells me that most of the middle class today is a salaried, white-collar worker in a service industry.

Unless you believe that the rise in salaried, white-collar jobs was the business world's solution to avoiding union labor, I think you need to give more credit to foreign investment in the U.S. economy that has allowed business to flourish. A rising tide floats all ships, even the middle class in this case. I'm just not sure that the middle class as we know it is a sustainable thing in the long term.

The primary problem that has caused the banana republics to fail is the concentration of all the wealth in the hands of a few while the masses starve. Ergo you get constant juntas, contras, and revolutions. And, many are "free market" systems.

Methinks you are confused. What causes the banana republics to fail is not concentration of wealth, but the fact that there is no security of property or life. There is nothing "free market" about a banana republic, indeed they tend to be the most economically repressive regimes on the planet. The US has a prosperous middle class because unlike banana republics we don't let the rich and well connected steal and murder their way to the top.

Patrick, please notice that I said "helped" generate a middle class and "UAW" was used figuratively to represent all unions that also substantially "helped". Yes, other things also "helped". Of all the individual factors, I still maintain that unionization and the redistribution that it generated was the single most significant.

And randian, it is still a fact - as witnessed time and again in history - that when a crucial mass of a population is hungry and it witnesses a very wealthy elite, it results in instability and revolution. It happened in 18th and 19th century Europe time and again and continues to Africa and Central and South America today. Granted, repression by the wealthy arises as a necessity in an attempt to protect and sustain the old order, which exacerbates the problem. But the root of the problem is still about the citizenry not having a living wage while "perceiving" that great wealth exists but has been kept from them. If we were allow for the total demise of our middle class, the same thing could happen here.

"But the root of the problem is still about the citizenry not having a living wage while "perceiving" that great wealth exists but has been kept from them."

That's a bit of an egergious comparison. The societies you describe typically have/had extremely indigent citizenry (as in starving like an Irish Potato farmer in 1849). Even the "poor" in this country are much, much better off than those who would be considered "middle income" in the countries you have described. The reason that these poor are better off is that the rich have gotten richer and so have the poor and middle income earners in the economy as well.

A full belly breeds complacency and until a sufficent number of the masses are starving, I highly doubt you would see the U.S. engaged in any sort of coup. Just my opinion.